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Chapter 5,
Other Corporate Tax
Levies
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OTHER CORPORATE
TAX LEVIES
?Alternative minimum tax (AMT)
?Personal holding company (PHC) tax
?Accumulated Earnings Tax (AET)
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Alternative Minimum Tax
(AMT)
?AMT is an acceleration of a corp’s
income taxes
?Small C corp exemption from AMT
?AMT formula
?AMT credit
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Small C Corp Exemption from
AMT
?Average gross receipts ? $5M for
three year period to qualify
?First year begins after 12-31-97
?Continuing qualification is based
upon three year average gross
receipts of ? $7.5M
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AMT Formula
(1 of 3)
Taxable income before NOL
+ Tax preference items
+/- Adjustments to taxable income
other then ACE adjustment and
____AMT NOL deduction
= Pre-adjustment AMTI
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AMT Formula
(2 of 3)
Pre-adjustment AMTI
+/- 75% of difference between pre-
adjustment AMTI and ACE
- AMT NOL deduction
= AMTI
- Statutory exemption
= Tax base
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AMT Formula
(3 of 3)
Tax base
X 20% tax rate
= Tentative minimum tax before
credits
- AMT FTC
= Tentative minimum tax (TMT)
- Regular income tax liability
= AMT due
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AMT Credit
?Corp may take a credit in future
years for AMT paid in previous
years if computed regular tax,
minus all non-refundable credits,is
larger than that year’s TMT
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Personal Holding Company
(PHC)
?Prevents closely held C corps from
sheltering passive income from
higher individual tax rates
?Stock ownership test
?Passive income test
?PHC penalty tax of 39.6%
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Stock Ownership Test
?Five or fewer s/hs who own
– ?50% of outstanding stock at any time
during last 6 months of corp’s tax year
?§ 544 attribution rules apply
–Similar to § 318 attribution rules
except,
?Except family attribution also includes ALL
ancestors and lineal descendents
?Corp attribution for ALL shareholders
–Attribution rules cannot be used to
prevent a corp from being a PHC
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Passive Income Test
?Passive income test satisfied if,
–PHCI ? 60% of AOGI
?PHCI includes
–Dividends,interest income,annuity
proceeds,royalty income,distributions
from an estate or trust,certain
personal service contracts
–Rents,unless corp earnings are
predominantly from rental income
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PHC Penalty Tax
?Calculate undistributed personal
holding company income (UPHCI)
?Apply 39.6% rate to determine tax
?Avoiding PHC status with
–Throwback dividends
–Consent dividends
–Dividend carryovers
–Liquidating dividends
–Deficiency dividends
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Accumulated Earnings Tax
(AET)
?Definition
?Evidence of tax avoidance
?Evidence of reasonable needs
?AET liability
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Definition of AET
?Penalty tax to compel corps to
distribute profits not needed for
conduct of its business
?S/h must have tax-avoidance
motive to avoid receipt of dividends
?AET usually applies to closely held
corps
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Evidence of Tax Avoidance
?Loans to shareholders
?Corporate funds spent for personal
benefit of shareholders
?Loans to a brother/sister corp
?Investments unrelated to corp’s
business
?Protection against unrealistic hazards
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Evidence of Reasonable
Needs
?Expansion or replacement of facilities
?Acquisition of a business enterprise
?Debt retirement
?Working capital - Bardahl formula
?Loans to suppliers or customers
?Product liability losses
?Stock redemptions
?Business contingencies
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AET Liability
?39.6% of AE taxable income
?Issue usually raised one or more years
after tax year in question,
?Once determined,liability cannot be
reduced by deficiency dividend
?Dividends actually paid during tax year
reduce AETI
?AEC available but subject to phaseout,
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